Ordering and interest rate strategies in platform finance with an overconfident and commerce retailer

Abstract We investigate the effect of overconfidence on a capital-constrained supply chain under platform finance (PF), in which the e-commerce retailer (e-tailer) sells products and pursues a financing strategy through a platform. The e-tailer’s overconfident behavior is gauged by a cognitive bias in the estimation of demand variance. We develop Stackelberg games under two PF schemes: fulfillment by platform (FBP) and by e-commerce retailer (FBR). We find that overconfidence influences participants’ decisions and performance. Slight overconfidence weakens the platform’s bargaining power since the e-tailer will make conservative order decision and the platform will cut the interest rate. Severe overconfidence may be exploited by the platform since the e-tailer performs insensitive to the interest rate. We find there exists a Pareto region that entices both parties to participate in FBP.